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Why Is Emerson Electric (EMR) Up 11.4% Since Last Earnings Report?

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Zacks Equity Research
·4 min read
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It has been about a month since the last earnings report for Emerson Electric (EMR). Shares have added about 11.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Emerson Electric due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Emerson Electric Q4 Earnings & Revenues Beat Estimates

Emerson’s fourth-quarter fiscal 2020 (ended Sep 30, 2020) adjusted earnings of $1.10 per share beat the Zacks Consensus Estimate of 95 cents. On a year-over-year basis, the bottom line improved 2.8%.

In fiscal 2020, the company’s adjusted earnings were $3.46, down 6% on a year-over-year basis.

Inside the Headlines

Emerson’s net sales were $4,558 million in the quarter, reflecting a decline of 8.3% from the year-ago quarter. Underlying sales were down 9% on account of the decline in demand owing to the coronavirus outbreak. Forex woes had a 1% positive impact on sales, while acquired assets had no impact. Notably, the top line beat the Zacks Consensus Estimate of $4,509 million.

In fiscal 2020, the company’s net sales were $16,785 million, down 8.6% on a year-over-year basis.

The company reports net sales under two segments — Automation Solutions, and Commercial & Residential Solutions. Fiscal fourth-quarter segmental results are briefly discussed below:

Automation Solutions’ net sales were $3,005 million, decreasing 10.8% year over year. Underlying sales declined 11%, while foreign exchange and acquired assets had no impact on sales.

Commercial & Residential Solutions generated net sales of $1,555 million in the fiscal fourth quarter, down 3.3% year over year. Underlying sales were down 3%, while foreign exchange and acquired assets had no impact on sales. Under the segment, Climate Technologies’ sales declined 2.7% year over year to $1,111 million, and that from Tools & Home Products decreased 4.7% to $444 million.

Gross Margin

In the quarter under review, Emerson's cost of sales decreased 5.9% year over year to $2,676 million. It represented 58.7% of net sales compared with 57.2% in the year-ago quarter. Gross margin was at 41.3%, down 150 basis points. Selling, general and administrative (SG&A) expenses declined 14.7% to $946 million. As a percentage of sales, SG&A expenses were 20.8% compared with 22.3% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting fiscal 2020, Emerson had cash and cash equivalents of $3,315 million, up from $1,494 million at the end of the fiscal 2019. Long-term debt balance increased 47.9% year over year to $6,326 million. During fiscal 2020, the company repaid debts of $503 million.

In fiscal 2020, it generated net cash of $3,083 million from operating activities, reflecting an increase of 2.6% from a year ago. Capital expenditure was $538 million, down from $594 million.

During fiscal 2020, the company paid out dividends amounting to $1,209 million and repurchased shares worth $942 million.

Outlook

For fiscal 2021 (ending September 2021), it anticipates net sales growth of 1-4%. Underlying sales are expected to lie in the range of a decline of 1% to growth of 2%.

Adjusted earnings per share are predicted to be $3.45 for fiscal 2021.

Emerson expects Automation Solutions’ net sales to lie in the range of a decline of 1% to growth of 2%, while Commercial & Residential Solutions’ net sales are projected to increase 5-8%.

Notably, the company anticipates challenging but gradually improving demand environment in the fiscal first quarter and in the quarters ahead.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 10.61% due to these changes.

VGM Scores

At this time, Emerson Electric has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Emerson Electric has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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